A gold miner

In 2020, Greatland Gold (LSE: GGP) soared. This was partly due to the rising price of gold, yet mainly due to news that the company is sitting on a huge load of the metal. A massive amount of gold can be found in the company’s Havieron deposit, where it’s estimated that there may be as much as 4.2m ounces. This deposit is jointly owned by Newcrest Mining, a far more established gold miner that has helped fund the mining venture.

Even so, despite the massive potential of the Havieron deposit, the GGP share price has sunk from highs of 38p at the end of 2020, to its current price of around 15p. Such a large drop has occurred as many investors have decided to bank profits, especially as the company remains pre-revenue. This means there’s a risk that the gold miner will never reach the production stage.

But I see this as a minor risk. All studies of Havieron are extremely positive, and there have also been positive developments in other mines around the world, such as the Juri joint venture. Further, due to the current volatility in Eastern Europe, the price of gold has been soaring. While this will not have an impact on the company right now, it could have major benefits in the long term. This is specially true if the price of gold can remain at the $2,000 per ounce mark. Therefore, I feel this penny stock has enormous growth potential, which is why it makes up a small part of my portfolio.

Another mining penny stock

Atlantic Lithium (LSE: ALL) is another mining stock I really like. But as the name suggests, instead of gold, Atlantic Lithium is involved in the production of lithium. This may have great future benefits, as lithium is a critical component of electric vehicles, and demand is expected to soar over the next decade. Further, although production has not yet started, initial drilling work at its mine in Ewoyaa has revealed massive potential. In fact, initial estimates reckon there may be around 21.3m tonnes of lithium. This means that this penny stock could be a great way to profit from the global conversion to electric vehicles.

Even so, this stock certainly does not come without risks. For one, like GGP, it remains pre-revenue. This meant that the loss after income tax for the group was nearly $5m in the FY21. Such large losses increases the chances of the group running out of cash before it’s able to reach production. As such, I’d only open a very small position in Atlantic Lithium.

The post 2 giant-potential penny stocks to buy today appeared first on The Motley Fool UK.

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Stuart Blair owns shares in Greatland Gold. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

My bullish call on penny stock Greatland Gold (LSE: GGP) back in August 2019 remains one of my most satisfying. A little over a year later, the GGP share price had jumped to 38.5p. That represents a gain of around 2,200%, by my calculations.

Since then however, the value of the stock has more than halved in value. Will the publication of the pre-feasibility study (PFS) for the firm’s Havieron project arrest the gold miner’s decline?

Great potential

If you’re new to mining stocks or investing in general, it’s worth clarifying the purpose of this analysis. A pre-feasibility study is conducted early on in the lifecycle of a mine. It gives a company, its backers and would-be backers an idea about whether it makes economic sense to carry on digging. 

As my Foolish colleague Zaven Boyrazian reported on Tuesday, there was a lot to like about Greatland’s PFS on the South-East Crescent of the deposit. An estimated rate of return of 27% means GGP (and partner Newcrest) should only take three years to recoup costs once production begins. 

The fact that this study was only focused on 28% of the initial resource estimate also gives some indication of just how big (and lucrative) Havieron could become. 

Unfortunately, the GGP share price fell heavily on this news and now sits at just above 17p. This is the case despite GGP investors now having some concrete numbers to work with. It’s also despite gold being seen as a good hedge against inflation, which might not be as transitory as some economists previously believed. 

Wait – why did the GGP share price FALL?

I suspect it’s down to investors’ expectations becoming a little more realistic. This makes would-be buyers less likely to get carried away and bid up the share price to questionable levels. When this is accompanied by a wave of ‘sell on the news’ traders, GGP’s share price fall does make some sense.

There are other considerations. Even if everything goes to plan from here (and that’s extremely rare for mining projects), Greatland doesn’t expect to begin extracting the precious metal until 2024. That’s a long time for holders to wait while the share prices of other penny stocks zip ahead.

As always, investing requires reflecting on what I’m potentially giving up elsewhere by staying loyal to a particular stock (otherwise known as ‘opportunity cost’).

Other risks to consider are that miners are never in control of the price of whatever they dig up. After years in the wilderness, the precious metal’s valuation soared last year in the aftermath of the Covid crash. In 2021, it’s been a very different story.

Without a mine in operation, that’s arguably less important for GPP than an established player. However, it won’t always be the case. 

Buy the eventual dip?

Is GGP a beaten-down bargain? Possibly. Tuesday’s report certainly highlighted the massive potential of the project. I also think there’s a lot to be said for Havieron being located in a mining-friendly, politically stable part of the world.

At £700m however, I reckon it will take a lot more than before to move the company’s valuation significantly higher for a while. Perhaps this is now one for me to snap up in the next (inevitable) market crash?

The post The GGP share price: is this penny stock now a beaten-down bargain? appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

What caused the strong performance yesterday?

There were a couple of factors that caused the 25% rise yesterday. Firstly, Greatland Gold’s partner, Newcrest Mining, announced that it intends to release its pre-feasibility study results from Havieron on 12 October. After a series of positive updates from this deposit, the results are expected to be positive, and hopefully, there may be a decision to mine at some point soon. This could see the GGP share price soar.

Secondly, the bank Berenberg also reiterated its buy rating for GGP, giving it a target price of 26p. This implies that shares have potential upside of 32% from the current price. As such, I feel this could have reignited the optimism that abounded in 2020, causing the GGP share price to rise as a result. Hopefully, this optimism will continue into the future.

Other factors

Despite both these factors being positive, a rise of 25% is still extremely large, and there’s the potential that some of these gains may be lost over the next few weeks. Indeed, GGP is still in its exploration stages, meaning that it’s pre-revenue. Accordingly, it’s incredibly hard to value the stock, and its current share price is solely based on speculation. Extreme volatility is, therefore, the likely result. This means that, despite the potential that the company has, there are still plenty of risks.

Further, if the results at Havieron disappoint, this is likely to see the stock drop significantly. This is because its share price rise last year was heavily reliant on its success at Havieron. The 25% rise yesterday also demonstrated that expectations are very high and there seems very little room for bad news.

Where next for the GGP share price?

Due to difficulties around finding a suitable valuation, it’s hard to say where the GGP share price will go next. Nonetheless, I’ve been willing to add the shares to my portfolio. This is due to their incredible potential and the indications that the company is sitting on a ton of gold. There have also been encouraging results from other deposits, such as the Juri joint venture. Hopefully, this may see the company start generating revenues at some point soon, something I feel would have a very positive impact on the GGP share price. As such, although I want to keep GGP as just a small part of my portfolio, I’m still tempted to add a few more shares.

The post As the Greatland Gold (GGP) share price explodes, should I buy more? appeared first on The Motley Fool UK.

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Stuart Blair owns shares in Greatland Gold. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A bright future ahead for this gold miner?

Greatland Gold (LSE: GGP) had an incredible 2020, with its share price rising over 1,800%. Nonetheless, 2021 has been far less favourable, and the Greatland Gold share price has fallen nearly 50% year-t0-date, to a price of 19p.

I feel that this decline offers the perfect opportunity to buy this penny stock though. Firstly, although the company is pre-revenue, there is a ton of potential. This is mainly due to the Havieron deposit, where GGP has a joint venture with Newcrest. In fact, it is believed to hold around 4.2m ounces of gold, which is equivalent to around £5.58bn in gold at current prices. On Thursday, the company also reported a strong update on the progress at Havieron. This gives me hope that production is not too far away, and means GGP may soon become profitable. This is the main reason why I have added GGP to my portfolio.

On the other hand, there are risks that must be considered. For example, GGP is pre-revenue, yet is still valued at around £750m. This valuation is solely based on speculation that GGP will become profitable in the future. Setbacks are therefore likely to be met with major falls in the GGP share price and are a risk that must be considered. This is the reason why GGP only makes up a small part of my portfolio.

Another gold-mining penny stock

Pan African Resources (LSE: PAF) is another gold miner yet has a number of differences to Greatland Gold. For example, PAF has started gold production, and has been profitable for the last two years. Things also look promising for 2021. In fact, the miner is expected to produce over 200,000 ounces of gold, around 12% higher than 2020. PAF has also managed to reduce its senior debt from $62m last year to $33.8m. This demonstrates that the firm is in a strong position right now.

Unlike GGP, PAF pays a dividend of around 4%. This is far higher than a number of other UK shares, especially in comparison to other penny stocks, and offers a compelling reason to invest, I feel. With dividend cover of 2, it is also well supported by profits. As such, I cannot see the company cutting its dividend. This was the main reason that tempted me into buying PAF shares for my portfolio.

Of course, like all other gold stocks, the PAF share price is heavily dependent on the price of gold. After soaring in 2020, the price of gold has struggled more recently, and this has negatively affected many gold stocks. Therefore, there is the risk that the price of gold will continue to decline, and PAF’s profits will also be hit. This is also completely out of the company’s control.

The post 2 UK penny stocks to buy now appeared first on The Motley Fool UK.

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Stuart Blair owns shares in Greatland Gold and Pan African Resources. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.